Indiana is Still a Donor State
It’s time to change that
October 14, 2019
By Vicki Kitchin
What is a donor state when it comes to federal highway funding? It depends on who you ask. Some will tell you there are no longer any donor states except Texas. They’re wrong.
It’s a simple calculation, and simply about fairness.
Based on the most current data available from the Federal Highway Administration, Indiana contributes 2.61% of all fuel tax revenue flowing into the federal Highway Trust Fund. But, our share of federal funds received back is only 2.42%. That means our rate of return is 92.7% (2.42 divided by 2.61 = .927).
BIC’s position is that Indiana should receive at least a 95% return. 
So, what’s the big deal? Well, it’s big money. Under the current federal highway authorization, known as the FAST Act, if Indiana received a 95% return, we’d have nearly $35 million more per year to use on our highways and bridges. For a typical 5-year bill, that’s $175 million that could be put to good use on Indiana highways instead of sent to other states.
Notably, since the inception of the federal highway trust fund in 1956, Indiana has foregone $4.6 billion in funds generated here that were distributed to other states to improve their highways. Our cumulative rate of return is only 84.7%! For comparison, Rhode Island’s return is 261%, Vermont’s 264% and Hawaii’s a whopping 588%.
So why do some say Indiana is no longer a donor state?
Powerful legislators from other states who want to keep Indiana’s money for their own uses, are trying to make the donor argument to go away. And, they’ve been successful in convincing many people that the donor argument is no longer valid. They’ve even built into law a so-called guarantee that makes it sound like we’re all winners while preserving their ability to take our funds.
Let me explain. In the last couple of federal highway bills, there has been a “guarantee” included for donor states. But the supposed guarantee is not applied to all the funds distributed. In 2012, the highway bill known as Moving Ahead for Progress in the 21st Century (MAP-21) eliminated funding formulas and equity guarantees. The 2015 Fixing America’s Surface Transportation (FAST) Act extended this approach and requires that all states receive the same percentage share of distribution received in FY 2015.
Think of it this way: There used to be a big spreadsheet with complex formulas (based on factors including interstate lane miles, diesel fuel usage, vehicle miles traveled and highway account contributions, etc.) that calculated how much funding each state would receive. Under MAP 21, Congress erased all the underlying formulas but hard coded the total column. From that point forward, each state’s funding has been calculated as a simple derivative of what the state received at the time that total column was hard coded. This means that Indiana no longer has the opportunity to increase our return if, for example, our diesel fuel usage or VMT increases. Congress should reinstate fair formulas to ensure a rational method for distributing funds.
At the same time, Congress changed the calculation of each state’s guarantee (formerly percent contributed divided by the percent distributed) to be 95% of the dollar value contributed by each state to the HTF.
What about Indiana’s fair share of the general fund dollars?
Here’s the problem: Because Congress has been supplementing the highway trust fund with general fund dollars, they are distributing much more funding than is being generated by the states via highway user fees. So, while it sounds good to say that Indiana is assured a return of 95% of the dollars we put in, the truth is that we are not receiving our fair share of the general funds that are being distributed.
And there is no logical reason for Indiana to not receive a fair share of the general funds that are distributed. Given that they are general funds, it’s impossible to tell their source. And particularly given that for decades we’ve been sending our highway tax funds to other states (i.e. the $4.6 billion mentioned earlier), it’s time for Indiana to receive a fair share of all the funds distributed including general funds.
We don’t know how the next highway reauthorization will be funded. Will Congress increase highway user fees and/or find more general funds for the federal Highway Trust Fund? Who knows? But in Indiana we do know this: we need every possible dollar to come back here so that Hoosier taxpayers can benefit from highway improvements.
Meanwhile, despite those who say it isn’t so, Indiana is, unfortunately, still a donor state. Let’s all work with our congressional delegation to change that.